The lack of news from Dubai World about its restructuring scheme prompted investors to book profits on the Dubai Financial Market.
Most of Sunday's increase was eroded as the general index fell 1.37 per cent, with investors deciding to cash in on the latest gains.
The index rose in five of the past seven sessions and added more than seven per cent as expectations of good news about Dubai World pushed the level of buying higher.
Emaar, Arabtec, DFM, Tabreed, Hits Telecom, Dartakaful, Shuaa Capital led yesterday's losses and there were only two gainers. Arab Insurance Group and Takaful Emarat rose by 4.08 per cent and 1.02 per cent respectively and closed at Dh2.04 and Dh0.99.
The index closed at 1,722.63 points, down 23.97 points from the previous day's 1,746.6.
Twenty-one stock declined and seven closed flat.
"It's profit booking as some stocks gained more than 10 per cent in the latest rally," senior financial analyst Wadah Al Taha told Emirates Business.
"We have seen two types of profit booking – partial profit booking that can be contained within a session, and heavy profit taking, which is normally wider and tends to lead to more follow-up profit booking."
The index opened on a weak note at 1,730 points and touched the day's high of 1,747.04 at 10.30am.
Ajman Bank, Deyaar and Emirates NBD were trading higher. The index came under pressure later owing to profit booking.
The index touched 1715.61 points, which remained the session's low, at 12.15pm and moved in a restricted range of 13 points for the rest of the session. "The overall market this week is expected to be positive," added Al Taha.
"At this juncture the market should be fed with more news. At the beginning of the week the market value to book value was one and the price-to-earnings ratio was 11. These key fundamentals indicate that the market has good potential as there's more room for it to grow."
The index breached the critical level of 1,700 points on Sunday and gave positive signs of further upward movement, but its upward journey could not be sustained for a second session because of the profit booking. "I think the market will move further above the critical 1,700-point level as the index was trying to test 1,750 yesterday.
"The first technical resistance for the index will be 1,730, and climbing above that would take it to the psychologically important 1,800 level."
The market was moving mostly as a result of trading by retail investors, which indicated a lack of participation from other participants. The majority of investors have used the rally to exit.
Now the question arises – how long will the present buying binge continue as key stocks reach overbought positions. Some analysts feel the rally was a bit overdone, while others fear that if the much-awaited news does not come as anticipated the gains will soon be eroded.
Al Taha allayed these fears, saying: "I am expecting favourable news from Dubai World. There won't be any haircut in the repayment of the principal amount."
Trading turnover on the DFM dropped by 25.41 per cent to Dh698.51 million yesterday from Sunday's encouraging figure of Dh936.48m and volume of 489.57 million shares.
On Sunday, the increased participation of institutions contributed to the surge in volumes.
"The average daily value on the UAE bourses was up at Dh719m from Dh260m a week ago," said Wadah Al Taha. "The trading volumes are still encouraging."
Emaar, which attracted Dh308.94m of trading, contributed 44 per cent to the turnover, followed by DFM, Arabtec, DSI and DIB.
ATMI informed the bourse that its board meeting would be held on March 25, while Gulfa's Annual General Meeting and EGM are scheduled to be held on April 4.
Mashreq told the DFM that its meeting on Sunday approved the proposed increase of the limit for its euro medium term notes from $2 billion (Dh7.3bn) to $5bn.
However, this is subject to Article 180 of the Federal Companies Law Number Eight for 1984 and the approval of the authorities before issuance. Yesterday was the last trading session in which entitlement to dividends from Mashreq, DIN and NGI would be granted to the buyers.
Tabreed's share price has fallen in every session since it announced its results for the fourth quarter of 2009.
Tabreed announced its figures on March 8 and since then the stock has fallen by more than 24 per cent, with the shares easing 4.08 per cent to close at Dh0.47.